ABSTRACT
Few would disagree with the positive economic effect that trade and foreign direct investment has had on the development of the four East Asian economies. The expansion in trade has largely been facilitated by the constant inflow of foreign direct investment. Exports, especially industrial exports, have often been explained by these economies’ comparative advantage. Judging from the export performance of the four East Asian economies, it can be concluded that their comparative advantage has changed over the decades, and export expansion has been supported by different manufactured exports. This chapter focuses on the role of trade and foreign direct investment in the growth of the four East Asian economies. One of the roles they have played is in the changing nature of comparative advantage. It has also been argued that the external sector supplements domestic growth. As such, it forms a necessary condition for growth, while domestic prerequisites are both necessary and sufficient conditions.
